Indirect tax

Indirect tax

The term indirect tax has more than one meaning.

In the colloquial sense, an indirect tax (such as sales tax, value added tax (VAT), or goods and services tax (GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). The intermediary later files a tax return and forwards the tax proceeds to government with the return. In this sense, the term indirect tax is contrasted with a direct tax which is collected directly by government from the persons (legal or natural) on which it is imposed. Some commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax can be." ["Britannica Online", Article on [ Taxation] . See also "Financial Dictionary Online", Article on [ Direct taxes] .]

An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. ["Financial Dictionary Online", Article on [ Indirect taxes] .] Examples would be fuel, liquor, and cigarette taxes. An excise duty on motor cars is paid in the first instance by the manufacturer of the cars; ultimately the manufacturer transfers the burden of this duty to the buyer of the car in form of a higher price. Thus, an indirect tax is such which can be shifted or passed on.

In addition, the U.S. Government deems VAT to be a direct tax for purposes of the Vienna Convention on Diplomatic Relations, as it does the London Congestion Charge so diplomats are exempt. The U.S. Department of State's Office of Foreign Missions operates a reciprocity policy in the matter of sales tax exemption. Another important definitional conflict has simmered at the World Trade Organization in the context of the granting of export tax rebates by the United States (FSC and DISC corporations).

In the early years of the United States, there was strong opposition to the federal government levying direct taxes. As a result, the government resorted to tariffs, an indirect tax.

The term indirect tax has a different meaning for U.S. constitutional law purposes. See Direct tax; see also Excise.


ee also

*Direct tax
*United Kingdom Corporation Tax
*Income tax in the United States

Wikimedia Foundation. 2010.

Look at other dictionaries:

  • indirect tax — ➔ tax1 * * * indirect tax UK US noun [C] ► TAX a tax on goods or services that are bought, rather than on income: »They have created a type of underground economy in order to avoid paying indirect taxes. »Sales Tax and Value Added Tax are… …   Financial and business terms

  • Indirect tax — Indirect In di*rect , a. [Pref. in not + direct: cf. F. indirect.] [1913 Webster] 1. Not direct; not straight or rectilinear; deviating from a direct line or course; circuitous; as, an indirect road. [1913 Webster] 2. Not tending to an aim,… …   The Collaborative International Dictionary of English

  • indirect tax — n a tax which is added to the cost of goods and services →↑direct tax >.indirect tax ation n [U] …   Dictionary of contemporary English

  • indirect tax — indirect taxes N COUNT An indirect tax is a tax on goods and services which is added to their price. Compare direct tax …   English dictionary

  • indirect tax — in·di·rect tax /ˌin də rekt , dī / n: excise Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

  • indirect tax — noun count a tax on goods and services rather than on income …   Usage of the words and phrases in modern English

  • indirect tax — n. a tax on certain manufactured goods, imports, etc. that is paid indirectly by the consumer because it is included in the price …   English World dictionary

  • indirect tax — noun a tax levied on goods or services rather than on persons or organizations • Hypernyms: ↑tax, ↑taxation, ↑revenue enhancement • Hyponyms: ↑hidden tax, ↑duty, ↑tariff, ↑excise, ↑ …   Useful english dictionary

  • indirect tax — UK / US noun [countable] Word forms indirect tax : singular indirect tax plural indirect taxes economics a tax on goods and services rather than on income …   English dictionary

  • indirect tax — tax which is not collected directly from the payer …   English contemporary dictionary

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.